Internet Service Providers - Market Assessment

The Internet service provider (ISP) market has changed radically since 2001. There has been a dramatic shake-out in the top ten, with some names (e.g. Tiny, 08002Go and World Online) disappearing, and the brands Claranet, Virgin.net and Telewest blueyonder emerging. Even Freeserve has been rebranded as Wanadoo. The potential user base has also undergone major changes. Consumers are now more willing to change ISPs, and most find it easy to do so. Smaller ISPs, such as waitrose.com, are scoring higher among users for satisfaction than traditional suppliers such as AOL. Retaining customer loyalty has become a prime concern among ISP executives.

Internet connections in the UK have burgeoned. National Statistics reported that, in the second quarter of 2004, 52% of households in the UK could access the Internet from home, compared with just 9% in the same quarter of 1998. The surge in broadband looks set to outpace the growth in the number of PC Internet connections in the home, and is the main recent development in the ISP world.

The UK also leads the Group of Seven (G7) countries in terms of availability, with 97% broadband coverage. This is expected to exceed 99% by summer 2005. Much of that is concentrated in urban areas. Cable broadband offered by companies such as ntl and Telewest covers around 40% of the population. The ratio of broadband to narrowband connections is on the increase. On the other hand, the index of narrowband (dial-up) connections, after a peak in February 2002, continues to decrease. However, dial-up still dominates the overall number of subscriptions.

The UK is the second-largest broadband market in Europe, and a report carried out by the Office of Telecommunications (Oftel) in 2003 showed that UK prices are cheaper than many other countries for broadband, encouraging faster uptake. (Oftel has since been replaced by the Office of Communications [Ofcom].) The UK also had the fastest-growing broadband market in Europe. However, research generally shows that the pace of growth in Internet users has begun to slow somewhat. Competition among ISPs has heightened.

The PC remains the prime medium for Internet access in the UK and looks set to remain so. Only a small minority of Internet users show any desire to access it via a mobile telephone, but this is likely to grow as multimedia messaging services expand. Interactive television has potential as the medium offering the Internet to the masses, with the penetration of digital television likely to reach 100% in the UK, once analogue broadcasting is switched off by 2010.

Key Note believes there is scope for continued growth in Internet user numbers. Some of the factors influencing market growth include slowing take-up rates but faster access speeds. Broadband will prevail and, with monthly charges falling, will also help to attract more users, with easier video and music downloading. The number of users accessing via broadband will outstrip narrowband users in 2006. Mobile and wireless access will increase, as a growing number of users access the Internet on the move, e.g. from wireless fidelity (Wi-Fi) hotspots. Technology options are widening, with features such as Voice over Internet Protocol (VoIP) appearing, which allows ISP users to make free telephone calls to friends.

Key Note Market Assessments
Providing in-depth strategic analysis and including primary research, these premium reports examine the scope, dynamics and shape of key UK and European markets, with a particular focus on financial services, consumer and lifestyle sectors.